Having just completed the 2023 Ventana Research Value Index for Subscription Management, I want to share some of my observations about an important component of subscription management: Contract management.
Whether the contract life cycle is managed within the system or, more likely, is digitally represented within, any changes to orders, subscription plans or contract terms should be
The impact subscription-based pricing has on revenue recognition is significant as most of the revenue occurs in the future and is not realized until a qualifying event occurs. This could be upon delivery, when a payment is made or in the event of services when delivery milestones are met. Although it is feasible to deal with this entire process as part of typical ERP financial accounting, the events that drive recognition are more closely linked to those that are captured and managed in a subscription management system. More advanced applications have the capabilities to compute the accounting adjustments from data and events, utilizing a sub ledger to generate the necessary journal adjustments to be transferred to the primary general ledger.
As can be seen from much of the discussion above, modern subscription management applications require extensive capabilities to integrate data and processes with existing customer systems. Master data for customers, products, pricing and vendors, if not managed within the application, needs to be synchronized with minimum latency. This also applies to contract and order information to ensure that customer amendments are reflected in the billing process within the billing period that the changes occurred. Any entries need to be integrated to accounts receivables, payables and the general ledger for revenue recognition purposes. Bill presentment, payment processing and collections are areas that also require integration. And integration should be intelligent, with notification and alerts made available for any errors or issues that may occur and with functionality that supports remote manual remediation if automatic remediation is not possible. Integration and automation go hand in hand, with the aim of as much through processing as possible to remove the need for manual intervention, the result of which is routine processes that can run remotely, affording subscribers a frictionless experience.
While the aim is to automate future processes as much as possible, reporting what has already happened is still useful for auditing purposes. When thinking of reporting needs for organizations there are two distinct types: operational and analytical. We see operational reporting as at the detail- and transaction-level and is used for the purpose of validation and audit rather than analytics. Most commonly, reporting comes directly from the stored data with limited filtering or aggregation. Reports can be scheduled with delivery either to be printed or as a .CSV (comma-separated values) file to view via a spreadsheet or other personal productivity tool. On the other hand, analytic reporting is for the purpose of understanding customer behavior and staff performance. Filtered, aggregated and cross tabbed, this data is either presented as dashboards or drillable tables from within the application or through common business intelligence tools via a customer’s own data warehouse or a third-party cloud-based analytic data warehouse offering.
Vendors in the subscription management market space are now including more advanced analytic and predictive capabilities that utilize artificial intelligence (AI) techniques such as machine learning (ML). Suggested collection strategies for overdue and delinquent accounts or detection of passive churn events such as an out-of-date credit card on file or invalid address are examples of these capabilities. Vendors have been slow to roll out value-added offerings that can recommend additional monetization opportunities such as pricing optimization or plan and bundle options.
Overall, vendors have embraced the need for many non-digitally native companies to be able to supplement their core one-time sales business with additional pricing and revenue models such as subscription and usage with complementary products and services. Even some digitally native customers are investigating adding physical goods to complement their digital products.
While subscription management is used in the title of this survey and report, for most organizations it is no longer just about subscription management. Instead, organizations are considering all the different types of modern pricing and revenue strategies available beyond flat-fee subscriptions. For many industries, this is more about developing additional ways to monetize and generate revenue streams that complement their core business. A current example is a well-known German car manufacturer’s recent announcement offering heated seats on a subscription basis; the capability exists in every seat, and a consumer chooses when they wish to take advantage of it via a monthly payment. In our view, the real focus is on mixed pricing and revenue models. With organizations for whom this is new, support for these endeavors is in the context of existing business and systems. Organizations have the option to use current billing systems that are typically part of their accounting and finance tech stack, their customer relationship management system (CRM), homegrown systems, a mixture of manual process and personal productivity tools, or they can look to the vendors covered in this report.
Although our methodology is to look only at vendors’ current products and roadmap, as the buyer, organizations should ensure that any application being considered is capable of not just satisfying the needs for today but for the future as well. How the new subscription system integrates with existing systems and processes is key as it is essential to have a unified subscriber experience across the subscription, order, selection and billing processes. Regardless of how product lines are internally organized, the process should never be visible to the subscriber. As such, it may be beneficial to continue utilizing existing invoicing and payment collections while feeding in additional billing lines from new pricing models. Over time, as the proportion of overall business represented by newer pricing shifts grows, this can be reversed. Most modern systems can efficiently deal with all types of pricing and revenue models at scale, unlike typical finance and accounting systems. Organizations should also consider whether the business could benefit from deepening partner relationships to offer additional and complementary products and services to customers that encourage more sustained engagement. If this is the case, ensure the applications being investigated have these capabilities as part of their standard offering and not as a work around.
When it comes to data and analytics, organizations should understand how a vendor is providing capabilities to not just modernize and automate, but also how they use the data generated from these processes to better identify how an organization can improve and enhance the customer experience. Look to see whether they offer any advanced techniques to aid in predicting churn and projecting revenue, including usage, and how these capabilities are presented. And do they have capabilities to help organizations test new products and services, and for those that are successfully test marketed, to then easily operationalize and incorporate them for a broader market.
The right application that fits not just early forays into new revenue models but also scales with an organization’s ambitions will enable that organization to continually meet customer expectations while ensuring financial integrity and compliance, and to continue to build and grow a sustained, profitable business.
The Subscription Management Value Index Market Report evaluates the following vendors that offer products that address key elements of subscription management as we define it: Aria Systems, BillingPlatform, Chargebee, CloudSense, Conga, FastSpring, FinancialForce, Gotransverse, LogiSense, Maxio, NetSuite, OneBill, Oracle, Ordway, Vindicia, Recurly, RecVue, Salesforce, SAP, Zoho, and Zuora.
You can find more details on our site as well as in the Value Index Market Report.
Regards,
Stephen Hurrell